Know When to Start Investing

Chapter 2: Why Start Early?

Transcript

00:05:26 TONYA: Alright, so moving into why it’s important to start now or to start as soon as you have your financial house in order. What are the benefits of starting early, or starting now we should say?

00:05:38 DAN: I mean this is gonna sound silly, buy you’ve started.

00:05:41 TONYA: Yeah. That’s the hardest part a lot of times.

00:05:45 DAN: There’s a lot of fear around this and there’s a lot of, “I’ll wait until I…” or, “I’ll build up a little bit…”, or, “I’ll do this”, or, “I’ll do that." So we’re gonna talk a lot, I think, about compound interest, which is this idea that investments make interest. Then there’s interest on the old interest.

]00:06:02 DAN: Sure. Yeah. So, compound interest is really just interest on old interest. So, let’s say in a hypothetical example you put away $1,000 and you get 10%, you’re gonna get $100 in growth. That next time you put get 10%, you’re gonna get $110. You get the same hundred and then 10 on the old hundred. Then you’ll get $121. And so as that goes on, year after year after year it really starts to add up, which is why you want to start.

00:06:28 EARL: Yeah, I think it was Albert Einstein who said that compound interest is the eight wonder of the world. And he or she who owns that, earns it, earns this interest. And he or she who doesn’t know it, they end up paying it. So, you end up like Dan said, with this compound top of your money, and you end up being far, far ahead in terms of what your investments are gonna produce. So this compound interest is very, very important in terms of people learning it.

But I think one of the things that causes people not to get started is because they think they gotta know everything. It’s one of the hardest hurdles to achieve in terms of just getting started. So one of the best ways to do that is just to maybe work with likeminded people who wanna invest and have the same interests. And another way, maybe, is to bring somebody in who is gonna help you, and you can share your ideals with. Just any way you can to get started and get over that major hurdle of just getting started.

00:07:33 TONYA: Yeah. Oftentimes when I’m working with people or I’m talking to them, I say “You know, you’re spending your money in other ways, and the money isn’t working for you. So, you’re fearful of investing, but you’re not giving your money a chance to work for you. So why not go ahead and take that chance?

00:07:46 DAN: I’m a big proponent of I think it’s more the fear than it is necessarily amount of money. Start with a few dollars, something that you’re okay, “Hey, it was either buying lunch out or it was using it for this.” Start with ten dollars. That’s okay. Get comfortable with it. Realize that, yeah, there’s ups, downs, there’s things you need to learn, but you don’t have to have every single piece of knowledge to really get moving.

00:08:08 EARL: Right, right, and it’s important that, just like you said, you don’t have to start with a lot of money. You don’t have to start with a lot of education. Just start. Just learn one little thing, and maybe that will allow you to learn another. So, it’s just important to pick up your foot, take a step, take another step, and before long you’re walking and running and stuff like that. So just get involved.

00:08:30 DAN: The thing I also loved, I just wanna go back a second. I love that Albert Einstein quote because it ties in so perfectly to the last chapter “He Who Understands It, Earns It; He Who Doesn’t, Pays It.” Well, guess what, that’s credit card debt.

00:08:52 EARL: Right, and that’s why I go back to education. Because if people knew that, everybody would want to be earning more and doing a better job and doing it way efficiently. So it gets back to education, and that Albert Einstein quote is probably an eighth or ninth wonder of the world, too, in just realizing that.

00:09:11 TONYA: So, I think that we could say basically that it’s important to start now because when you start investing your money it gives you the opportunity to make more money on your money.

00:09:19 DAN: Absolutely.

00:09:20 TONYA: So now we know that you want to start investing now, but there are also benefits to starting early. So someone who starts early has an advantage. What are some of the advantages of starting early when it comes to investing?

00:09:31 DAN: It kind of goes back to that compound interest, right? And that’s powerful. But really it is more powerful the longer you have, which is not to say, “Hey, if you’re in a situation, you’re a little older, you’re starting a little later.” That’s okay, but it’s back to the starting as soon as you can, whether that’s now when you’re 52, whether that’s now when you’re 22, whether that’s now when you’re 82.

The sooner you can start, the more years that has to compound, the faster, the stronger, the quicker that’s gonna grow. And, you know, as scary as this can be, most people who are pretty young right now should have over $1,000,000 when they retire. And that seems impossible until you start to look at compound interest and you realize that’s really not that much when it comes to saving now. But if you’re trying to do that at 60, it’s gonna be quite a bit harder. It’s doable, but it’s harder.

00:10:23 TONYA: Yeah. You know, Dan and Earl, I’ve never sat and said, “You know, I wish I would have bought those shoes when I was 20.” I never have said that, but I have said, “I wish I would have started investing when I was 20,” especially knowing what I know now.

00:10:35 EARL: Yeah, because the younger you are, the more you can achieve. And the more of the ups and the downs that you can handle because if you start right. And Dan couldn’t be more right or more correct in terms of getting back to this compound interest about Albert Einstein. But the ups and the downs and the longevity of starting early will allow you to defeat a lot of the things that’s gonna happen to you, so it’s important that they start early.

00:11:06 TONYA: Absolutely. Yeah. So starting early, that’s one of the most important factors. And even if you haven’t started early, maybe you can encourage someone else in your life to start early because it really is important in allowing your money to work for you and take advantage of compound interest.

00:11:19 DAN: Well, and now is earlier than later, right? So whether you don’t feel like you’re starting, well you know, that’s what I’m saying. Even if you don’t feel like you’re early, if you feel like you’re late, it’s still earlier now than it would be a year from now, two years from now, five years from now.

00:11:34 TONYA: I like that philosophy.

00:11:36 EARL: Yeah, I do, too. I’m still thinking about that.

00:11:37 TONYA: I like that. I’m adopting that. Now is earlier than later.

00:11:39 EARL: Now is earlier than later.

00:11:40 TONYA: So we can all agree that starting early is essential to growing your investment portfolio.

This chapter and conversation gives you the extra push you may need to put your money to work for you. Download the Just the Facts: Investing Worksheet to help you understand the benefits of investing early.

First things first.

Get your financial house in order, first and foremost. Make sure your goals and aspirations are identified, plans are written down, and your budget is rolling before you jump into investing.

With other budgeting in place, investing could add to your plan without disrupting what you already have working for you.

Maximize your returns.

When you start investing early, you give your money the chance to grow with the help of compounding interest. Also, creating a longer time horizon for your investments makes it easier for you to weather the ups and downs of the market.

Get comfortable before you go for it all.

Test the investing waters before you jump in. Start with a small amount of money and observe what happens. After you get a sense of the market, add more and more based on what you're comfortable with.